North Carolina Acts to Correct Problems with Tax on Repair, Maintenance, and Installation Services

Monday, July 25th, 2016

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North Carolina

Construction

North Carolina's recent budget bill aims to clarify how tax applies to repair, maintenance, and installation services. The bill also relieves some businesses from liability for collecting this tax incorrectly.

On March 1, 2016, North Carolina began taxing sales of repair, maintenance, and installation services. The tax applies to sales by retailers that get more than half of their revenue from retail sales. Tax only applies to these services when they are performed on tangible personal property.

Some businesses have had a hard time figuring out whether to tax their services. For this reason, the bill provides that a retailer is not liable for undercollecting this tax in 2016 if the retailer made a good faith effort to collect the right amount of tax. The bill also allows the Department of Revenue ("DOR") to accept reduced payments to settle tax debts related to these services.

Effective January 1, 2017, the bill will also change several parts of the sales tax law. Sales tax on repair, maintenance, and installation will apply no matter how much revenue a seller gets from retail sales. The tax will also apply to these services performed on any property—not just tangible personal property. However, services provided for "real property contracts" will not be taxable. "Real property contracts" include new construction, reconstruction, and remodeling services for real property. Real property contracts generally do not include repair jobs or installations of individual fixtures. The DOR is expected to publish guidance in the coming months to detail how the law has changed.

TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.